Latest reports reveal the shrinking Chinese manufacturing sector may be stabilising, as the troubled Euro-zone continues to get worse.

Business Week reported, sentiment improved after HSBC Inc. released a preliminary version of its monthly China purchasing managers’ index, which saw a three-month rise of 49.1. Although below the 50-point level, which indicates a contraction in manufacturing, the 49.1. reading was a strong improvement from September’s 47.9 .

Europe however, fell below expectations with Euro-area services and manufacturing output contracting more than economists forecasted in October. German business confidence also dropped to the lowest in more than 2 1/2 years as Europe’s recession deepened.

“The euro-zone recession is still getting worse,” said Holger Schmieding, chief economist at Berenberg Bank in London. “In a disappointing set of data, the fact that the Ifo expectations index did not decline further offers the only ray of hope. In this sense, the survey results today do not dispel the hope that the euro economy could turn the corner early next year,” Business Week.

A composite index based on a survey of euro-area purchasing managers in services and manufacturing fell to 45 – lowest recording in more than three years, London-based Markit Economics revealed.

Improvements in China’s economy has come from Government cutting interest rates twice since June, contributing money into the economy through higher investment by state companies and spending more on building subways and other public works. Business Week reported.

“Improvement in the PMI index is pointing toward a recovery,” Morgan Harting, who assists with managing about $100 million in emerging-market assets at AllianceBernstein Investments Inc., revealed. “Companies with more cyclicality to their business, that are more sensitive to changes in expectations about the economic cycle, tend to have the most potential for appreciation.” Bloomberg reported.